Bengal RRBs await fresh capital

Atmadip Ray, TNNDec 24, 2007, 06.33am IST

KOLKATA: The West Bengal government will inject fresh capital in the state's regional rural banks (RRBs) in two separate phases. An in-principle decision to this effect has been taken at the state finance department.

This will help the state government spread out the burden — a modest Rs 51 crore — on its exchequer over two years. The state would infuse the first dose of capital in the next quarter while the second tranche is likely in early 2008-09.

In another important step, the state government has proposed to pay RRBs by cash instead of issuing recapitalised bonds, as was suggested by a section of commercial banks that hold 15% equity apiece in the RRBs.

"The West Bengal government has taken the in-principle decision to release the funds by March 2008. It has intimated the Union government about its plan last week," a source close to the development said. ET has learnt that Bihar, Jharkhand and some northeastern states have also agreed to release the recapitalisation fund by the fiscal to March 31, 2008.

Since West Bengal has agreed to infuse fresh capital into RRBs by cash, the Centre — the principal shareholder in RRBs with 50% holding — and the sponsor banks would also need to release their share of recapitalisation support accordingly. While the Centre has made cash provisions to this end, sponsor banks may find it difficult as they would need to shell out the fund out of their annual profits.

In the first phase, the Uco Bank-sponsored Paschimbanga Grameen Bank and the Central Bank of India-backed Uttarbanga Gramin Bank would receive full recapitalisation support from the three shareholders — the Centre, the state government and the two respective sponsor banks. The RRBs will collectively receive Rs 10 crore from the state government and another Rs 56 crore from the Centre and the sponsor banks.

However, the United Bank of Indiasponsored Bangiya Gramin Vikas Bank (BGVB), with a negative networth running to about Rs 270.50 crore, will get the fund in two phases. The state, on its part, would release Rs 41 crore for BGVB in two tranches. The size of each tranche is still being worked out.

Overall, the three regional banks in the state will require a capital support of Rs 336.50 crore to come out of the negative capital zone.